Goldman Sachs at Hearing, BofA-SEC, Liquidity: Compliance

Goldman Sachs Group Inc. executives sparred with lawmakers over accusations that its aluminum business improperly influenced prices and that the firm’s traders had unfair access to market-moving data.

Under fire at a hearing yesterday on whether Wall Street’s ownership of commodities spurs conflicts, Goldman Sachs’s Jacques Gabillon disputed senators’ charges that long wait times for aluminum stockpiles had a direct effect on what companies and consumers pay for the metal.

Only a handful of Goldman Sachs employees get information on the aluminum unit and reports are limited to financial performance, he said.

Gabillon’s statements were met with skepticism from a U.S. Senate panel that released a 400-page report Nov. 19 alleging that commodities businesses give banks undue influence over markets, spur trading advantages and could endanger the financial system through an industrial catastrophe.

Senator Carl Levin, the Michigan Democrat who chairs the Permanent Subcommittee on Investigations, called the Goldman Sachs transactions “merry-go-round deals” that had little purpose other than moving aluminum around from warehouse to warehouse to influence how much customers paid for storage and financial products tied to the metal.

The Senate investigation adds to months of scrutiny from lawmakers and companies that use commodities over banks’ involvement in the business.

The Federal Reserve faces pressure to restrict Wall Street’s control over commodities such as oil, aluminum and coal after lawmakers said banks tried to exploit rules and influence prices to their benefit.

Levin said in an interview yesterday, after he grilled executives from Goldman Sachs, JPMorgan Chase & Co. and Morgan Stanley at a hearing in Washington, that the integration of banks with physical commodities has “gone too far.”

Daniel Tarullo, the Fed governor responsible for financial rules, is set to testify before the panel today.

Separately, Goldman Sachs dismissed two bankers after one of them allegedly brought secret documents from the Federal Reserve Bank of New York into the firm.

A junior banker, who joined the company in July from the New York Fed, was fired a week after the discovery in September along with another employee who failed to escalate the issue, according to an internal memo obtained by Bloomberg News that didn’t identify the pair.

Jake Siewert, a bank spokesman, confirmed the contents of the memo, which was prompted by a report Nov. 19 in the New York Times.

Goldman Sachs said in the memo that the bank has “zero tolerance” for improper handling of confidential information and is reviewing its hiring from governmental institutions.

Compliance Action

Bank of America Granted Penalty Relief After SEC Compromise

The U.S. Securities and Exchange Commission has resolved an impasse over punishing Bank of America Corp. in a mortgage case, clearing the way for the lender to complete a $16.7 billion global settlement, people familiar with the matter said.

In a private meeting Nov. 19, SEC commissioners voted to waive most of a set of additional sanctions that would kick in when the settlement is entered into court, according to the people, who asked not to be named because the decision hasn’t been made public. The bank did get hit with a penalty that takes away its ability to issue more shares or bonds without SEC approval each time.

The SEC decision came as Bank of America and the agency were reaching a deadline for having a federal judge in North Carolina sign off on the settlement. The two sides had twice sought more time from the court as negotiations dragged on.

John Nester, a spokesman for the SEC, declined to comment, as did Lawrence Grayson, a spokesman for Bank of America.


Madoff Bankruptcy Costs Top $1 Billion Six Years After Fraud

Six years after Bernard Madoff’s fraud collapsed, the cost of liquidating his defunct investment advisory firm to repay thousands of victims has topped $1 billion, though the con man’s former customers aren’t footing the bill.

The fees, paid by the industry-backed Securities Investor Protection Corp., which is managing the case, have financed a team of lawyers who this week surpassed $10 billion in recoveries for victims, or almost 60 percent of the principal that vanished after Madoff’s arrest in December 2008.

Irving Picard, the bankruptcy lawyer who’s leading the effort as trustee for Madoff’s company, included the new fee total in an interim report posted yesterday on his website. A bankruptcy judge in Manhattan regularly approves the fees, sometimes over the objections of victims’ groups.

The victims, who believed their investments were used to buy securities, have been paid almost $6 billion by Picard since he started distributing the recovered funds.

The fraud, which prosecutors said started as early as the 1960s, involved millions of pages of fake trades and account statements for thousands of customers. Picard used hundreds of professionals to unravel the swindle and determine who held valid claims and who needed to be sued, court records show.

Many of the cases have triggered appeals, some to the U.S. Supreme Court.

Madoff, 76, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina.

The liquidation is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-bk-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).


Tarullo Says Regulators Plan to Propose Liquidity Rule

Federal Reserve Governor Daniel Tarullo talked about bank liquidity rules and the state of the financial system.

He addressed The Clearing House’s annual conference in New York.

To listen, click here.

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